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1Q11 Revenue increased 19% to $27.4 million vs. 1Q10 revenue of $23.0 million

1Q11 GAAP EPS: $0.05 vs. 1Q10 GAAP EPS: $0.06

1Q11 Non-GAAP EPS: $0.07

BROKEN ARROW, Okla., March 7, 2011 (GLOBE NEWSWIRE) -- XETA Technologies, Inc. (Nasdaq:XETA) today reported earnings of $571,000, or $0.05 per diluted share, on revenue of $27.4 million for the first fiscal quarter ended January 31, 2011. This compares to earnings of $633,000, or $0.06 per diluted share, on revenue of $23.0 million for the first fiscal quarter ended January 31, 2010.

During the first quarter of fiscal 2011, the Company recorded $324,000 of non-recurring expenses for professional fees and other costs related to corporate development activities. Excluding non-recurring expenses recorded during the first quarter ended January 31, 2011, non-GAAP net income was $768,000, or $0.07 per diluted share.

Line of Business

1Q11

1Q10

% Change

Maintenance & Repair

11,254

8,218

37%

Design & Integration

3,137

3,042

3%

Cabling

905

857

6%

Total Services

15,296

12,117

26%

Commercial

9,711

10,039

-3%

Hospitality

2,276

828

175%

Total Systems

11,987

10,867

10%

Other Revenue

122

60

Nmf

Total Revenue

27,406

23,044

19%

Total revenue increased 19% during the first quarter of fiscal 2011 primarily due to the contribution from business acquired during the past nine months. The effect of supply chain issues from a major supplier and unusually strong comparisons with the prior year negatively impacted Commercial systems revenue and resulted in a 3% decrease in that category year over year. Hospitality systems revenue increased $1.4 million to $2.3 million as a result of improved capital spending in that market sector and a large data and voice network order received from a new customer associated with the Company's new high speed internet product offering.

The company said that it completed the move to its new St. Louis-based network operating center ("NOC") during the first quarter. The 23,000 square foot facility houses staff and technology to provide proactive network and application monitoring, help desk services, and 24/7 technical support for a wide variety of industries. The NOC also houses the Company's primary logistics and staging facility to support our standard nationwide implementation protocol. Greg Forrest, CEO, said, "This world class facility greatly expands our service offering and gives XETA the capability to proactively monitor and resolve issues often before they can escalate."

During the first quarter of FY11, gross margin was 25.5 percent of revenue versus 27.5 percent during the first quarter of FY10. Systems margin remained relatively unchanged year over year and within targeted ranges. Services margin decreased to 28.0 percent of sales versus 32.1 percent during the same period a year ago. Operating expenses during the first quarter of FY11 were $6.1 million, up from $5.3 million reported during the first quarter of FY10. Excluding non-recurring expenses during the first quarter, operating expenses were 21 percent of revenues in the first quarter of fiscal 2011 compared to 23 percent of revenues in the first quarter of fiscal 2010. Excluding non-recurring expenses during the first quarter of 2011, net income increased to $768,000, or 2.8 percent of sales, versus $633,000, or 2.7 percent of sales during the first quarter of 2010.

Forrest continued, "During the first quarter, which is typically our seasonally weakest, we reported the highest quarterly revenue in more than 10 years and the third largest quarterly revenue in the Company's history. Momentum built during the quarter and revenue was back-end loaded. This trend, combined with supply chain issues at one of our major vendors, affected utilization and profitability of our implementation services during the first quarter. In addition, duplicate costs associated with the move into our new NOC affected our services margin. Operating expenses, excluding non-recurring items, were lower as a percentage of revenues in comparison with the prior year, which reflects the cost efficiency programs we implemented last year, as well as acquisition related synergies."

Condensed Consolidated Statements of Income

Three Months Ended
January 31,

2011

2010

(Unaudited)

Sales

Services

$ 15,296

$ 12,117

Systems

11,988

10,867

Other

122

60

Total

27,406

23,044

Cost of Sales

Services

11,017

8,231

Systems

8,945

8,077

Other

448

397

Total

20,410

16,705

Gross Profit

6,996

6,339

Gross Profit Margin

26%

28%

Operating Expense

Selling, General and Administrative

5,838

5,125

Amortization

312

187

Total Operating Expenses

6,150

5,312

Income from Operations

846

1,027

Interest Expense

(19)

(6)

Interest and Other Income

113

21

Total Interest and Other Income

94

15

Income Before Provision for Income Taxes

940

1,042

Provision for Income Taxes

369

409

Net Income after Tax

$ 571

$ 633

Basic Earnings Per Share

$ 0.05

$ 0.06

Diluted Earnings Per Share

$ 0.05

$ 0.06

Wt. Avg. Common Shares Outstanding

10,742

10,237

Wt. Avg. Common Equivalent Shares

10,810

10,277

(The information is unaudited and is presented in thousands except percentages
and per-share data.)

Consolidated Balance Sheet Highlights

(Unaudited)

January 31, 2011

October 31, 2010

Assets

Current

Cash

$ 722

$ 1,003

Receivables (net)

18,328

17,806

Inventories (net)

6,430

6,715

Other

4,708

4,637

Subtotal

30,188

30,161

Non-Current

PPE (net)

7,571

6,932

Goodwill & Intangibles (net)

21,203

20,946

Other

233

326

Subtotal

29,007

28,204

Total Assets

$ 59,195

$ 58,365

Liabilities

Current

Revolving Line of Credit

$ 3,392

$ 1,756

Notes Payable

338

338

Accounts Payable

7,803

10,032

Accrued Liabilities

5,087

4,006

Unearned Revenue

5,977

6,529

Subtotal

22,597

22,661

Non-Current

Long Term Debt

173

255

Noncurrent Deferred Tax Liability

396

12

Other

137

193

Subtotal

706

460

Total Liabilities

23,303

23,121

Equity

$ 35,892

$ 35,244

(The information is unaudited and is presented in thousands.)

Reconciliation of Adjusted EBITDA(1) to
Net Income

Quarter Ending
January 31,

2011

2010

Net Income

$ 571

$ 633

Interest

19

6

Provision for Income Taxes

369

409

Impact of Non-recurring Corporate Development
Related Costs

324

--

Depreciation

429

286

Amortization

312

187

EBITDA(1)

$ 2,024

$ 1,521

(The information is presented in thousands.)

1The Company uses EBITDA (earnings before net interest, income taxes, depreciation
and amortization) as part of its overall assessment and comparison of financial
performance between accounting periods. XETA believes that EBITDA is often used by
the financial community as a method of measuring the Company's performance and of
evaluating the market value of companies considered to be in similar businesses.
EBITDA is a non-GAAP financial measure and should not be considered an alternative
to net income or cash provided by operating activities, as defined by accounting principles
generally accepted in the United States ("GAAP"). A reconciliation of EBITDA to net income
is provided above.

The following table reconciles reported GAAP net income per the income statement to
non-GAAP net income:

XETA Technologies, Inc. sells, installs and services advanced communication technologies for small, medium, and Fortune 1000 enterprise customers. The Company maintains the highest level of technical competencies with multiple vendors including Avaya, Mitel, Nortel, Hitachi and Samsung. With a 28-year operating history and over 16,000 customers from coast to coast, XETA has maintained a commitment to extraordinary customer service. The Company's in-house 24/7/365 contact center, combined with a nationwide service footprint offers customers comprehensive equipment service programs that ensure network reliability and maximized network up-time. More information about XETA Technologies (Nasdaq:XETA) is available at www.xeta.com . Click on the following link to join our e-mail alert list: http://www.b2i.us/irpass.asp?BzID=1585&to=ea&s=0 .

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements concerning the outlook for growth and the pace of such growth. These and other forward-looking statements (generally identified by such words as "expects," "plans," "believes," "likely," "anticipates" and similar words or expressions) reflect management's current expectations, assumptions, and beliefs based upon information currently available to management. Investors are cautioned that all forward-looking statements are subject to certain risks and uncertainties which are difficult to predict and that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: the condition of the U.S. economy and its impact on capital spending in our markets; the successful integration of recently acquired businesses into ours and realization of anticipated synergies and growth opportunities from these transactions; changes in Avaya's marketing and dealer channel strategy; unpredictable quarter to quarter revenues; our ability to maintain and improve upon current gross profit margins; intense competition and industry consolidation; dependence upon a few large wholesale customers for the recent growth in our Managed Services offering; the availability and retention of revenue professionals and certified technicians; failure to obtain shareholder approval or failure to satisfy other conditions required for the consummation of the pending merger with PAETEC Holding Corp.; failure or delay in consummation of the pending merger for other reasons. Additional factors that could affect actual results are described in the "Risk Factors" section of the Company's Form 10-K and Form 10-Q filings with the SEC.